The Music Industry in 1998: The Titanic Right Before It Hit the Iceberg

The best metaphor for the music industry in 1998 comes from the biggest movie of that year, Titanic (which, coincidentally, had the best-selling album of that year with its nine-times-platinum soundtrack). It’s the “King of the World” moment, when Leonardo DiCaprio stands at the bow of the ship, arms outstretched, cocky and hopeful, unaware that his dreams are about to be torpedoed by an iceberg. Picture music execs on that bow, flush with corporate coffers and boy-band revenues, largely oblivious that this was the beginning of the end: From 1999 to 2009, album sales would drop in every year but one.

Napster, the peer-to-peer file sharing service — and the music industry’s most commonly cited iceberg — would debut in 1999. But the biz had already suffered a tear in its hull: President Clinton's Deregulation of Telecommunication Act of 1996, which allowed for the consolidation of media outlets. By 1998, Sony, Universal, and Time Warner were hoovering up smaller labels, and hundreds of radio stations were being consolidated under a couple of umbrellas (predominately Clear Channel and CBS). The industry was inadvertently prepping for its own demise.

The first casualty of corporatization was variety in music — at least for consumers; the record labels were thrilled with their newfound ability to force feed their product to the public. "The labels loved the consolidation of radio because rather than trying to convince hundreds of stations to play a song, you could go to one guy at Clear Channel," says Michael Lustig, who managed acts like Bryan Ferry and the Smashing Pumpkins between 1988 and 2003. "That was a big reason for the death of diversity in music. At the same time, MTV was getting a lot more data about who was actually watching MTV, and, turns out, it was overwhelmingly kids between the ages of 6 and 15.” This created the perfect bubblegum storm: Total Request Live, hosted by Carson Daly, debuted in 1998, focusing largely on the era's biggest hit-makers: The Spice Girls were already huge, the Backstreet Boys were finally breaking in America after conquering Europe, *NSYNC released its debut album, and a former Mouseketeer named Britney Spears would sell 9 million copies of her first single, “… Baby One More Time.” (The album with the same name would be the second best-selling of 1999, after the Backstreet Boys’ Millennium.)

Lustig primarily managed alternative rockers, who broke out after the mainstream success of Nirvana in 1991. He remembers the moment he saw the expiration date coming for his kind of music: At a party in 1998, he says, “I ran into this publishing exec, who said to me, ‘Boy, I’ve never been so happy to see the end of alternative rock. I love Britney Spears and the Spice Girls!’" According to Lustig, the “punk rock ethos” of alterna rockers alienated and annoyed most music execs. "The labels were happy to trade these difficult, confronting, and aggro children for actual, malleable kids, who were often managed by their parents," he says. "I mean, why struggle to sell challenging, interesting music when you can churn out banal, cookie-cutter, factory-written pop? You can blame this attitude for the shift from artists to performers that still dominates pop music today.”

For the record industry, the new youth wave was a gold mine, as was a new country crossover market, led by Garth Brooks and Shania Twain. “There was still a lot of hubris in the music industry in 1998,” says a former Mercury marketing exec, who is still in the business and prefers not to alienate what’s left of it. (Let’s call him Mr. M.) “The executives didn’t think anything could crush them.” There were the usual layoffs and cost-cutting that goes along with corporate takeovers, as well as a ramping up of the kinds of egregious choices that happen when lawyers and accountants start running creative enterprises. “You only needed three or four big hits to make your year — a few blockbusters paid for everything else,” says Mr. M. “So much money was spent on what the industry called ‘priority artists’ — the P-word was so important.” A priority could be obvious, like Bon Jovi, with its lucrative back catalog, or it could be a haphazard guess at a supposed next big thing, like Steve Poltz. He co-wrote Jewel’s big 1996 hit “You Were Meant for Me,” so Mercury dropped $800,000 on his debut album, One Left Shoe, which went on to sell just 27,522 copies. Meanwhile, little was spent on the many signed acts that fell somewhere in between priority and high hopes.

By 1998, label execs already had nagging concerns about MP3 files, which were being shared on mp3.com. But with Napster’s debut the following year, music piracy became a headlining issue; it wasn’t long before a new generation of kids was addicted to free music — with devastating consequences for the music business: In 1998, total revenue from U.S. music sales and licensing was roughly $15 billion. By 2009 it had plunged to $6.3 billion and is expected to drop to $5.5 billion by next year. Instead of trying to find a way to capitalize on this new way of buying or listening to music (as Steve Jobs would do with iTunes in 2003), the labels reacted out of fear and insecurity: The RIAA began filing thousands of civil lawsuits against P2P file-sharers. Says Lustig: “Napster comes along, and how do they defend themselves? They sued their customers, alienating the very people who could save them!” In 1998, industry execs were fat and happy; but “in the end, Lustig says, “the labels ate themselves.”

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